Bottomed Out? : Last Week’s Hotel Deals Show New Activity, but Uncertainty Over Bankruptcy Lingers
Normally, word that two landmark Orange County hotels are being sold would be reason to rejoice.
Conventional wisdom holds that the Dana Point Resort and the Hyatt Newporter entered escrow because Southern California’s declining real estate market has hit bottom, at least in the dramatically overbuilt hotel market.
Further proof of a long-anticipated rebound could come soon because a number of other high-end hotels, including the Waterfront Hilton in Huntington Beach, the Biltmore in downtown Los Angeles, the Hyatt Aventine in La Jolla and the Four Seasons Biltmore in Santa Barbara, are quietly being shopped, real estate brokers said.
Out-of-town investors are again looking at Southern California hotels, said Dana Ciraldo, an executive with Hospitality Valuation Services, a Long Island-based company that helps determine the value of hotel properties. “We’re speaking regularly with significant investor groups who have Southern California on their radar screens,” Ciraldo said. “And, 12 months ago they didn’t.”
However, in Orange County, which is being dragged through an unprecedented and agonizing bankruptcy, the apparent bottoming out of real estate prices in the hotel market might be masking another, deeper bottom for the rest of the local market.
The county’s Dec. 6 bankruptcy filing isn’t casting dark shadows over the hotel industry, largely because tourists are interested in beaches and sunshine, not tax hikes and government service cuts.
But the bankruptcy continues to loom in other real estate sectors, including commercial, industrial and residential.
“I think we’ve hit bottom in Southern California,” said Don Wise, a first vice president with CB Commercial Real Estate Group in Anaheim. “But my crystal ball is just as murky as anyone else’s when it comes to the fallout from the bankruptcy, and I’m concerned about it.”
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Real estate analysts agree that bankruptcy alone isn’t enough to stop the economic recovery underway in Southern California. They do, however, acknowledge that fires, earthquakes, flooding and bankruptcy, when taken together, have a cumulative impact on the local economy.
“When it comes to economic decisions, to the extent that there’s any uncertainties, it’s going to result in a lower price,” said Neil Roberts, a Los Angeles-based partner with Coopers & Lybrand. “If it’s uncertainty about riots, earthquake or the impact of bankruptcy, it tends to make pricing go down.”
And, as faltering residential sales in Orange County during the first quarter suggest, the bankruptcy can’t be ignored. Bankruptcy, coupled with record rains and rising interest rates, pushed first-quarter home sales in Orange County down by 26.2%.
In contrast, Los Angeles County residents have no reason to fear bankruptcy. Rising interest rates and consumer fears about the recovery pushed home sales down, but only by 6.5% during the first three months of this year.
Many potential Orange County home buyers are “holding off on making a decision, to see how the county is going to deal with the bankruptcy,” said Bill A. Steele, director of real estate services in Costa Mesa for Deloitte & Touche, an accounting firm. “People are concerned whether special assessments will be added to their taxes or if the quality of education here will go down. These are real concerns that need to be dealt with.”
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The bankruptcy also could help to stall an uptick in commercial real estate that pushed prices up beginning in 1994. Orange County’s commercial real estate sector continued to grow in early 1995, brokers said, but at a pace slowed somewhat by concerns over bankruptcy.
“The results we’re getting now show the growth has slowed down,” said Jeffrey W. Cole, former president of the Orange County chapter of the National Assn. of Office and Industrial Properties, a trade group that includes 150 commercial real estate firms.
The commercial picture could worsen later in the year when the county is expected to use the shelter of U.S. Bankruptcy Court to reject, or abandon, unwanted leases.
Bigger projects, such as the South County courthouse planned for 40 acres in Rancho Santa Margarita, are being delayed because of the bankruptcy.
“With the market as it is, several local developers are in limbo or contractors have lost projects,” Cole said. “There’s a lot of concern from people who own office buildings who are worried that their tenants may leave.
“Until some plan on this bankruptcy is determined, it’s going to stay slow,” Cole said.
Consumers may be hesitant to buy homes, but developers are betting that they’ll live up to Orange County’s reputation as a retailers’ heaven, keeping that aspect of the market hot.
Developers are charging ahead on several large retail and entertainment centers. One project, near the Irvine Spectrum, calls for a number of entertainment outlets, including a 21-screen movie theater.
“Southern California’s market for retail properties is looking better this year than last year,” said John Davidson, a retail broker with Grubb & Ellis in Newport Beach. “Retailers are looking for more sites. Interest is up.”
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Real estate observers say Orange County’s fiscal woes mirror the impact that the 1980s oil crisis had on Texas real estate prices and the economic misery that Arizona endured during the early 1990s when, as Ciraldo said, “the (federal) Resolution Trust Corp. owned half of the town.”
Then, the S&L; scandals, the Martin Luther King holiday flap, and sagging real estate prices decimated the economy. “It was hard, then, to see the light of day,” the Hospitality Valuation Services executive said.
Most real estate brokers are eternal optimists, but even they acknowledge that they don’t have enough facts to compute the short-term impact of bankruptcy on Orange County’s real estate picture.
“I don’t think that anyone in the real estate business in Orange County will tell you that they aren’t concerned about the ultimate fallout of this financial disaster,” said Ken Agid,a Newport Beach real estate consultant. “But at the same time, professionals are not about to prematurely reach a conclusion on the outcome.”
Sanford R. Goodkin, president of Sanford R. Goodkin & Associates, a real estate consultant in San Diego County, said the county should benefit from some “unique factors,” most notably, the stabilizing force of longtime local developers, such as the Irvine Co., who are going to do their best to make sure this isn’t a long-term, pervasive condition.
For Goodkin, a longtime observer of Southern California’s real estate cycles, bankruptcy is yet another in the string of disasters to pummel the Golden State in recent years.
“You wonder if this is the last phase of Southern California’s incredible agony,” Goodkin said. “We’ve been punished by Mother Nature and now we’re suffering because of some greedy bastards and their derivative schemes.”
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On the Block
Eleven major Southern California hotels are for sale or have sold in recent weeks. (Dollar amounts in millions):
Hotels Location Asking Price Rooms Status Hilton Hotel Whittier $7.0 202 For Sale Westin Bonaventure Los Angeles 60.0 1,396 For Sale Anaheim Hilton Anaheim n/a 1,600 Offer made Radisson Hotel Carson 4.5 220 Offer made Hyatt Aventine La Jolla 75.0 400 Offer made Dana Point Resort Dana Point 38.0 350 Sold Hyatt Newporter Newport Beach 7.1 410 Sold Four Seasons Biltmore Santa Barbara n/a 234 For Sale Biltmore Hotel Los Angeles n/a 683 For Sale Long Beach Hilton Long Beach n/a 393 For Sale Sheraton Hotel Long Beach n/a 460 For Sale
n/a: not available Source: Individual hotels
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Occupancy Rate Steady
Orange County hotels filled about the same percentage of their rooms in 1994 as in 1993, despite a slight increase in the average room rate. Occupancy gains near John Wayne Airport and in South County were offset by decreases in Anaheim and the rest of North County.
OCCUPANCY RATE
Percentage 1993 1994 change Anaheim 68.3% 66.2% -3.1% Airport area 61.7 65.1 5.5 South County 62.9 63.0 +0.2 North County 63.8 62.6 -1.9 Countywide 66.0 65.5 -0.8
AVERAGE DAILY ROOM RATE
Percentage 1993 1994 change Anaheim $82.81 $84.52 2.1% Airport area 71.61 72.29 0.9 South County 72.54 73.84 1.8 North County 60.47 62.67 3.6 Countywide 77.80 79.13 1.7
Source: PKF Consulting
Researched by JANICE L. JONES / Los Angeles Times
